The ECOFIN – which is made up of EU finance and budget ministers – meets monthly and discusses many issues. This month’s meeting focussed largely on tax issues, partly spurred on by the upcoming G8 meeting, which also promises to put tax issues centre stage. The list of items covered at the meeting were impressive – savings tax reform, and a host of issues relating to tax evasion and tax fraud – but the outcomes were minimal.

Tax evasion and tax fraud

The formal agreement of the meeting – or ‘Council Conclusions’ – recognises that transparency measures today are not sufficient to be effective against tax evasion and tax fraud. The ministers highlight that “it is necessary to encourage Member States to take all necessary steps to tackle aggressive tax planning, where appropriate, which would help diminish existing distortions”.

One easy first step for EU leaders would be to end secrecy around who owns companies, trusts and other corporate vehicles.

Although the ministers support “improving the implementation and enforcement of standards of beneficial ownership information that is relevant for tax purposes”, they fail to mention the golden opportunity they have this year to make concrete progress. This year the EU is revising its Anti-Money Laundering Directive, which provides the perfect opportunity to put the real – or ‘beneficial’ – owners of companies, trusts and foundations on public record.

Today, tax evaders and other criminals can hide their identity behind a company or another legal entity, and they can easily use bank accounts to transfer their untaxed and illegally gained money. The EU can end this by requesting real owners to identify themselves and recording them in a public register.

EU finance ministers highlight the importance of “automatic exchange of information” on tax, and they note that the EU has a key role to play in “supporting and promoting the acceptance of such standards globally”, which is welcome. However, one of the few concrete actions mentioned in the Council Conclusions is that the “Presidency intends to write to the International Consortium of Investigative Journalists asking them to supply Member States through the relevant competent authorities with the names and details regarding all EU citizens on the ‘offshore leaks’ list”.

Surely the EU can think of more effective means of making sure that information is available? For instance, they welcome that automatic exchange of tax information is again on the table after five EU Member States agreed on an initiative for multilateral and automatic information exchange, also called the EU FATCA – named after the US Foreign Account Tax Compliance Act. This would be a significant first step towards increased transparency and would ease tax collectors’ jobs in the countries in question. However, while the ECOFIN recognised the global scale of tax secrecy, proposals for information exchange are so far exclusively for EU Member States and other countries from the global north. Developing countries risk being excluded. When EU leaders meet next week they should recognise the need for true multilateralism in tax matters. This is not the moment to make half-hearted reforms that only benefit the minority; the EU must throw its weight behind a multilateral solution.

Savings taxes – more delay and developing countries left out

Top of the news agenda was the much-delayed EU Savings Tax Directive. Hopes had been high that opposition in Austria and Luxembourg would be overcome. As Richard Murphy of the Tax Justice Network has said, the proposed directive “would represent very real progress in the fight against tax haven abuse because this demands real transparency on trusts and companies as well as on individuals”.  However, in the end, the ministers agreed to “revert to the matter at a forthcoming meeting”, heralding further delays.

In a comment about the disappointing outcome, Murphy said, “In the meantime the criminals are in charge in Austria and Luxembourg, and it’s right to name them as such”. Members of the European Parliament (MEP) were also disappointed about the further delay. Sven Giegold, spokesperson for economic and finance issues for the Green Group of MEPs, said:

“The shameless obstructionism by Luxembourg and Austria, which [is] continuing to block efforts to ensure proper transparency of bank accounts as part of EU action against tax avoidance, must be overcome. I call upon the heads of states to do so during their summit next week. If these two member states refuse to get out of the way of efforts to tackle tax avoidance in Europe, they must be bypassed.”

Don’t miss another opportunity: country-by-country reporting

Another step towards ending financial secrecy would be to implement country-by-country reporting of companies’ profits, sales, staffing levels, assets and tax payments. This will be a requirement for the banking sector and should be extended to all sectors. While EU Member States failed to use the Accounting Directive to take this step, the European Parliament has been more progressive. French President François Hollande has also said, “I am in favour of country-by-country accounting disclosure by quoted companies in France, whatever their sector of activity and not only in [the] extractive sector”. The Norwegian government is also supportive of the measure and recently launched a working paper suggesting full country-by-country reporting for the extractive and logging industries.

Taking these two steps towards ending corporate secrecy would not only help to curb tax evasion in the EU. These two simple measures would also help developing countries to keep and tax the billions of dollars that are being illicitly transferred from their coffers every year.

Defining tax havens?

In December 2012, the European Commission published an Action Plan to strengthen the fight against tax fraud and tax evasion (see Eurodad’s analysis). The Action Plan recommends that the EU should develop a set of criteria that would help produce a ‘black list’ of tax havens, or – in EU language – “to encourage third countries to apply minimum standards of good governance in tax matters”.

While France has expressed support for developing EU criteria and a blacklist of “non-cooperative jurisdictions”, this is a sensitive area because explicit criteria would also shed light on EU Member States with harmful tax practices, although the blacklist would only apply to non-EU countries. In a letter to the President of the European Council, Herman Van Rompuy Eurodad, Oxfam and 26 other NGOs encourage the EU to agree on a common binding definition of tax havens and effective non-compliance sanctions. “Unlike previous failed attempts, these criteria must be binding and comprehensive, combining as a minimum, features of secrecy of banks and legal entities, non-cooperation and harmful tax measures,” the letter states.

EU finance ministers this week decided to postpone the discussion and “invite consideration of whether developing a European list of third country non-cooperative jurisdictions is appropriate”. They also referred to ongoing work at the Organisation for Economic Co-operation and Development (OECD). While this keeps the item on the table, the link to the OECD is worrying because the OECD’s process of identifying tax havens has so far produced few results. While the indicators are going in the right direction, the OECD’s blacklist so far suggests there are no tax havens in the world.

So while it is positive that EU finance ministers are recognising the urgency of cracking down on tax havens and harmful tax practices by companies and governments, we need real political action to stop tax evasion. We need politicians to change laws, and to sanction misbehaviour. When meeting in Brussels next week, EU heads of states should therefore take the challenge from the 28 non-governmental organisations and agree on concrete measures including:
-          multilateral automatic information exchange;
-          disclosure of beneficial owners through public registries;
-          country-by-country reporting for transnational corporations in all sectors;
-          and a common binding definition of tax havens and effective non-compliance sanctions.

See more on what the EU should do to respond to tax scandals.

Public-Private Partnerships (PPPs) are high on the development agenda and they are increasingly being promoted as a way of closing the infrastructure financing gap in developed and developing countries alike. Given the complexity of the issues and risks involved, any decision to promote the use of PPPs in developing countries further should be based on a thorough assessment of these mechanisms, and on the lessons learned from past experience.

PPPs moving up the development agenda

In the current financial context, the central role of the private sector in development is being mainstreamed in policy discourse, and donor governments are increasingly turning to PPPs to deliver public infrastructure and public services. According to the International Institute for Sustainable Development, the “rise to power of PPPs” is “likely to continue following the 2007–2008 global financial crisis that sees many jurisdictions strapped for cash and seeking alternative methods of meeting the increasing demands for investment in public sector development”.

This is happening in various policy forums, as shown by the EU project bonds, the World Bank’s call to increase support to the private sector for growth highlighted by Eurodad’s analysis, as well as the private sector and infrastructure development focus of the new African Development Bank Strategy. As a recent paper by the Catholic Agency for Overseas Development (CAFOD) shows, this is likely to affect developing countries too, as European governments are more and more interested in using PPPs as a way of delivering development assistance, not only due to fiscal constraints but also because of the business opportunities they represent for European companies.

The G20 has been promoting the PPP approach in its different initiatives and work streams, including the Development Working Group. Just one example of this is the report of the High-Level Panel (HLP) on Infrastructure, appointed by the G20, which promotes mechanisms for scaling up PPPs globally.

Additionally, at the recent Spring Meetings in Washington, the G2O’s Russian Presidency underscored “the importance of long-term financing for investment, including in infrastructure, in enhancing economic growth and job creation”. A Study Group on financing for investment – chaired by Germany and Indonesia – was created last February (see Eurodad’s article) in order to specify how to reach these objectives. This group will discuss strengthening public policy and improving PPPs, among other issues, with a workplan that will be agreed at the upcoming G20 Summit in September.

At the March 2013 G20 Sherpa meeting, the Russian Sherpa stated: “we are considering the possibility of modifying mandates of national and international development banks, with the goal of focusing the institutions for development on promoting investment, primarily in infrastructure, and supporting public-private partnerships (PPPs) in this area“.  This might have consequences for key sectors such as energy, water and agriculture.

Key concerns to address before scaling-up PPPs in developing countries

Any decision to promote PPPs further in developing countries should draw the lessons from past experiences to ensure that PPPs are a productive and complementary development agent. What past experience has shown is that PPPs are complex and varied mechanisms that have brought mixed results.

The Eurodad briefing PPPs: Fit for development? highlights several problematic issues, including:

• The capacity of PPPs to deliver positive development outcomes cannot be assumed.
• PPPs tend to benefit private firms that already have sufficient access to finance at the expense of domestic micro, small and medium-sized enterprises.
• Risks are often disproportionally carried by the public sector.
• There are no prior poverty and social impact assessments in PPP projects and no systematic data on PPP projects’ outcomes.

Similarly, there are enough reasons for not exporting PPPs as a mechanism to deliver aid to developing countries, as shown in two papers on the issue, one by Nancy Alexander from the Heinrich Böell Foundation and the most recent one from CAFOD. Both papers raise red flags pointing out some additional and complementary concerns:

Alexander’s paper stresses that:

• PPPs cannot function effectively without an adequate regulatory framework.
• There has been a lack of contract transparency.
• There have been problems with methodologies for assessing PPPs.
• Local knowledge and ownership are key ingredients of PPP models and implementation. 
• There is a need for a clear and transparent regulatory framework to prevent corruption.

 CAFOD’s paper highlights that:

• PPPs are more costly than conventional procurement.
• PPP projects usually do not require the prior consent of populations.
• Government officials in developing countries lack the skills and resources to negotiate beneficial PPP deals.

The Organisation for Economic Co-operation and Development (OECD) guidelines on the governance of PPPs, which were adopted in May 2012, are a further illustration of the complexity of PPPs and some of the issues that should be addressed. In OECD terms, these recommendations to OECD governments are “appropriate steps to ensure that PPPs are affordable, represent value for money and are transparently treated in the budget process”.

These recommendations include:

• Assessing whether PPP projects are actually better at delivering value for money compared to other procurement methods.
• Conducting a cost-benefit analysis of the PPP project to ensure coherence of the project with overall government policies and objectives.
• Having the necessary skills to write and negotiate PPP contracts.
• Clearly defining and measuring the risks associated with the PPP project.
• Involving end-users in defining and monitoring the project and encouraging the active participation of all stakeholders.
• Ensuring budget transparency.
• Ensuring a competitive tender process, allowing the participation of domestic firms.  

As the G20 and other development actors are becoming increasingly engaged in this agenda, it is essential to consider these concerns and draw lessons from past experience in order to ensure that PPPs contribute effectively to development.

While Europe struggles financially and its citizens suffer from severe budget cuts, EU Member States are losing around €1 trillion annually to tax evasion and avoidance. Tax evasion and avoidance by multinational companies is also hampering development in the global south. Illicit financial flows from developing countries exceed the amount of development aid received many times over. The Tax Justice Network estimates that since the 1970s, the world’s richest had accumulated US$7.3-$9.3 trillion of unrecorded wealth in tax havens in 2010 and that $21-$32 trillion of unrecorded offshore wealth was channelled through tax havens in the same period.

The review of the EU Anti-Money Laundering Directive (AMLD) presents a golden opportunity to close regulatory loopholes and to put an end to the corporate secrecy that is necessary to dodge tax payments and to hide the money from tax evasion, as well as funds from drugs and arms trafficking and corruption. Here is some more information, put together by Eurodad:

• Revision of the EU Anti-Money Laundering Directive – How we can end damaging corporate ownership secrecy. This two-page note summarises why the EU should establish public government registries of the real beneficial owners of companies, trusts and other corporate structures.

•  A golden opportunity to tackle tax dodging and illicit capital flight: the review of the EU Anti-Money Laundering Directive. This two-page note details how the review of the AMLD can be used to curb illicit financial flows.

•  Offshore leaks: How EU policy-makers should use the AMLD to respond to tax scandals. The offshore leaks and the ensuing media debates set out why we need transparency and new regulations to put an end to tax dodging by the wealthy. This one-page note sets out how it should be done.

 For further analysis, see Eurodad’s report Secret structure, hidden crimes.

Eurodad member ActionAid has published an investors’ guide for tax responsibility. This guide is aimed at investors seeking to examine corporate tax policy and practices.

Tax is increasingly under the spotlight, intensifying financial, regulatory and reputational risks in this area for companies. Where tax practices are aggressive, they can also undermine the ability of governments in developing countries to provide public services, which is why international development organisations such as Eurodad, ActionAid, governments and international organisations are increasingly seeking a socially responsible approach to corporate tax.

In this climate, investors need clear benchmarks to gauge such risks, particularly in navigating often contradictory claims by businesses, journalists, campaigners and tax authorities. Clear, verifiable benchmarks would also help companies to cut through claims and counter-claims, enabling them to communicate their tax policies and practices, and the true levels of risk associated with them.

This guide is intended as a practical contribution towards defining such benchmarks across three broad areas of tax responsibility:

-          a responsible tax policy (content)

-          responsible management of tax policy (processes)

-          responsible tax reporting (transparency).

The report presents seven criteria to help assess tax responsibility:

Tax policy:

1. Who sets the policy, and who provides input?
2. Who has responsibility and how is the policy reviewed?
3. How does the content of the policy address risk?

Tax management:

1. What systems are in place to implement the policy?

Reporting:

1. Is the tax policy available?
2. How much tax is paid, and where?
3. Is detailed information given on subsidiaries in tax havens?

The business rationale

ActionAid, Eurodad and others have long believed and argued that responsible tax practices make clear moral sense. But there is also growing evidence that they make clear business sense too. A combination of fiscal downturn, media attention and regulatory weakness has increased the financial, reputational and regulatory risks of irresponsible tax behaviour in the last two to three years.

There is a risk that investors will bear the brunt of this sea-change. Their long-term prosperity – as well as the long-term prosperity of the companies they invest in, and the economies and societies they operate in – depends upon companies and investors working together to develop responsible tax policies, tax practices and tax management and tax reporting.

Even 12 months ago, such an initiative seemed unlikely, with large companies wary of ‘breaking away from the pack’ on tax. Now some large UK companies – including major retailers like John Lewis and Morrisons – are themselves seeking to distinguish themselves to consumers as responsible taxpayers, and are calling for legislative action on corporate tax avoidance. Investors may find that companies are far more receptive to the business case for tax responsibility than once seemed possible

Download the full report here. 

Tim paints a broadly similar picture to the CONCORD report, which I wrote. Domestic resources are several times larger than international flows, there is a significant variation from country to country, with many of the poorest still relying on aid and so on. (Have a look at the last chapters of my report if you want the key take home messages!)

It has a bit more analysis than my report in some areas – for example on South-South cooperation (estimated at $10.6 billion in 2010) – and less in others, particularly on domestic private sector resources. The report doesn’t cover innovative financing sources, but more is promised on this in the future – something to look forward to.

There’s a neat graph highlighting two important characteristics – how volatile a finance flow is and how concentrated it is in a small number of countries.

This highlights, as I did, how volatile FDI is, and how aid scores better on both counts than other finance flows. I’m not sure how they gave remittances their concentration score, as my analysis of the figures suggests they are highly concentrated in a small number of countries – Bangladesh, for example, receiving almost half of the low-income country total.

He concludes, as I did, that outflows of finance from developing countries exceed inflows, but suggests that in 2010, the difference was tiny, while my analysis suggest a far bigger gap. This is partly down to methodology, but mostly because I included government lending by developing nations in my outflows category. As developing countries build increasingly large reserves to protect themselves against economic and financial shocks, they are in effect lending enormous amounts of money at very low interest to rich countries.  UNDESA has done the most useful analysis of this trend, estimating that in 2011, developing countries lent $827 billion.

Here’s another of his excellent graphs – note the scale of illicit outflows, debt servicing costs and outflows of profits on FDI.

 There’s a great section on data quality – highlighting problems of coverage, detail and double counting – worth reading for all you data geeks out there, and as a salutary reminder not to take numbers as more than indicators of scale and trends.

The paper also has a lot of useful regional analysis, which I won’t attempt to summarise here – but here’s an interesting graph showing how low government expenditure per capita is in many regions:

Think of how difficult it is to finance schools, hospitals, sewerage systems, transport infrastructure and other services for which the majority of funding inevitably comes from public coffers if you’re operating with these budget levels. And the regional total obviously obscures the fact that many countries in each region will be far below even these small sums.

Next up to read, two interesting ODI papers on the same theme… watch this space!

A debate on the role of business in development cooperation last Thursday, 11 April in Amsterdam, raised one particularly revealing question for me: is it possible to reconcile two unrelated (and potentially conflicting) ambitions that the Dutch government has: “to eradicate extreme poverty” and “to facilitate success for companies doing business abroad”? Though most people agree that it’s important to unleash the potential of a thriving private sector, it’s also quite obvious that private companies are not development agencies. 

In the case of the Netherlands, the new policy document “What the world deserves: A new agenda for aid, trade and investment” recently proposed by their trade and development minister, Lilianne Ploumen, has caused a polarised debate. On the one hand, politicians such as Christian Democrat Agnes Mulder say “the Netherlands does not need to be ashamed of their self-interest”. On the other hand, Bram Van Ojik of the Green Left replies, “of course it is okay if businesses seek profits and go for their self-interest. But just don’t use aid money for that goal, because aid is meant for poverty alleviation. (…) Poverty reduction effects of private business investment in developing countries: there are many shadow sides to that.”

I think the main point is not whether we should spend public money to support private sector development or not – we are actually already doing that through public procurement and development finance institutions (DFIs) – but rather how we should do it in order to reach development objectives. Sadly, the current model is seriously flawed, suggesting that something isn’t fit for purpose.

Eurodad research indicates that the vast majority of the public money channelled through both public procurement and DFI lending ends up in Organisation for Economic Co-operation and Development (OECD) companies and, in some cases, in tax havens. This means that these funds never reach the intended beneficiaries. This is also linked to poor governance mechanisms, which are crucial to determining the financial and development additionality provided by these resources.

On top of this, since the global economic and financial crisis, most bilateral and multilateral institutions have massively increased investments in developing countries’ financial sectors. Financial intermediaries (FIs), such as commercial banks, hedge funds and private equity funds, are some of the institutions chosen to channel public money. As Eurodad has shown in 2010, lending and investments in the financial sector by bilateral and multilateral DFIs increased, on average, more than two-fold compared to pre-crisis levels. This pattern seems to be here to stay. The rationale for doing this is the possibility of reduced transaction costs and of reaching small companies more easily. However, implementation raises many questions, as hedge funds and private equity funds in particular are normally very opaque in both portfolio and investment strategies.

Besides general statements of intent, it is almost impossible for external stakeholders to actually track whether bilateral and multilateral DFI lending and investments reached small companies and the real impact of this money on the ground. In its briefing Risky Business, Oxfam analyses the main problems of using this kind of intermediary to channel development finance, among them: “opacity, complexity, focus on financial returns over development impact, focus on financial risk over environmental and social risk, lack of oversight or ability to influence the business practices of investee companies, remoteness from the projects ultimately financed and the impacts they have on poor people.”

Some alarm bells have also been ringing inside the World Bank. A recent audit report by the ombudsman for the International Finance Corporation (IFC), the World Bank’s private sector arm, has revealed serious problems in the IFC’s knowledge of where its money ends up and the environmental or social impacts of its financial market lending. Alarmingly, the report also found cases where failure to comply with the requirements included in legal agreements, and major environmental impacts “did not cause the IFC to refuse additional IFC financing” to the client.

Coming back to the initial question, it seems that, in the current context, the objective of matching poverty reduction with support to the national private sector is, at least, not realistic. When using development money, why don’t Northern governments focus on promoting sustainable and equitable development, by recognising the importance of local ownership and aligning development cooperation strategies with the industrial or development priorities of developing countries? This seems a better place to start than supporting their own firms.  Development outcomes should be the overriding criteria for project selection and evaluation, while transparency and mutual accountability should be the norm. In short, proper implementation of the aid effectiveness agenda is still a good starting point.

By María José Romero, Eurodad and Gustavo Hernández, Alop

An April seminar on the “Evaluation of the European Union’s support to private sector development in third countries” showed that much more needs to be done to maximise the impact of EU money on the ground, since linkages between EU support to private sector development and poverty reduction and job creation remain very distant.  

On 22 April, the European Commission (EC) presented an evaluation report on its support to private sector development in third countries, with the objective of identifying key lessons. The aim is to improve current and future strategies and programmes. The evaluation includes a survey with representatives of EU delegations and country visits, and covers all the support given during the 2004-2010 period in all regions where the EU provided direct funds, which amounted to €2.4 billion. Most of the funding was focused on the areas of facilitation of investment and access to finance (23%); sector budget support (20%); and investment and inter-enterprise cooperation (19%). In contrast, there was minimal support for micro-enterprises (2%).

The seminar devoted most attention to the key issue of the EC’s value added at the time of providing support to private sector development in third countries. On this point, the evaluation report mentions that “different types of value added by the Commission’s support were observed. They related to its financial weight, its trade mandate, its capacity to transfer EU good practices, its capacity to use a variety of support mechanisms and modalities, its continued presence and focus on poverty reduction, and the fact that it was perceived as less tied to specific economic or political interests. It cannot however be stated that any of these factors really stood out.” 

Furthermore, the evaluation report indicates that “Commission representatives did not have a clear and shared conception of what the Commission’s value added was or should have been with respect to PSD [private sector development] support.” The report covers neither the resources channelled through the EU blending facilities nor the African, Caribbean and Pacific countries Investment Facility managed by the European Investment Bank (EIB) to support private sector development. However, its findings are similar to concerns raised during the public seminar organised at the European Parliament on 21 March, which specifically addressed the blending mechanisms and the EU Latin American Investment Facility (LAIF). The civil society organisation (CSO) report on the LAIF concludes that “no direct link has been observed between the LAIF and the reduction of poverty and inequality. Indeed, the vast majority of projects do not include poverty reduction, inequality and exclusion (social cohesion) among their objectives”.

The evaluation report further states that, even if there is a broad consensus on the importance of the private sector for job creation, “linkages between the EU support for PSD and employment generation remained very distant and that the EU did not really use its support for PSD as an opportunity to promote crosscutting issues and the Decent Work Agenda”. CSO findings presented at the European Parliament, based on an in-depth analysis of four case studies, highlights that one out of four projects “has the potential to have positive impacts if the expected results are achieved. However, the lack of available information did not allow for a rigorous analysis and leads to a series of questions regarding the mechanisms and procedures for participation, monitoring and selection, and the prioritisation of energy efficiency over other financing needs of the SMEs [small and medium-sized enterprises].”

At the seminar, CSOs argued that – in times of scarce public resources – the EC should address these concerns by revisiting its support to PSD in order to ensure positive impacts on poverty eradication and job creation.

The Spring Meetings of the International Monetary Fund (IMF) and the World Bank just ended in Washington DC and brought little promise of sunny days ahead for development. The different Communiqués released during the meetings contain more lip service than practical commitments, and non-binding visions where in fact immediate actions are needed. The IMF governance reform remains stalled; the World Bank’s new development targets ignore inequality; leveraging private finance remains the makeshift solution as public development finance is scarce in times of austerity; and, while the Spring Meetings signified a rhetorical shift away from the austerity dogma, there are few means to implement that shift.  

IMF – all talk and no substance

Just a few days before the Spring Meetings started, the IMF’s new World Economic Outlook revised the Eurozone’s growth projections downward once again, and with them global growth projections. This implicitly acknowledges that the IMF’s policy advice back in 2010 – to move from fiscal expansion to austerity policies – was premature and inadequate. The Eurozone economy double-dipped rather than recovering, with negative spill-over effects for Europe’s trading partners, including in the South.

Statements by IMF’s Managing Director Christine Lagarde and IMF staff at the Spring Meetings encouraged those countries that can afford it to move back to less contractionary fiscal policies in order to stimulate growth. However, the diplomatic language in the International Monetary and Financial Committee’s (IMFC) Communiqué that “surplus economies must boost domestic sources of growth” indicates that they have limited willingness to comply. Furthermore, the IMF has no means besides rhetoric to pressure surplus economies that are not dependent on its loans. For the crisis countries, austerity remains the medicine of choice: “deficit countries must continue to raise national saving”, which implies a further reduction in consumption and investment.

The agreement on governance reforms contains no news. The implementation of the already agreed quota reform is stuck as it awaits approval by the US Congress. The upcoming quota formula reform is supposed to strengthen the ‘dynamic economies’, which means that the IMF will continue to be dominated by rich countries and marginalise the poor. Only the composition of these country groupings might change.   

On a more positive note, the current anti-tax evasion wave has also reached the international finance institutions (IFIs) as the IMFC acknowledges that “fighting tax evasion is critical”. However, the policy advice that follows is limited to “promote transparency in the tax, anti-money laundering and counter-financing of terrorism areas”. This is insufficient, as the IMFC is still ignoring the need for progressive taxation or shutting down tax havens in order to fight poverty and drive equitable growth. The temporary extension of the zero interest rate for the IMF’s facilities for low-income countries that has been ‘noted’ by the IMFC will not fill the gap.

World Bank – full of empty promises

This situation was obviously a challenging starting point for the World Bank section of the Spring Meetings, presented under a huge ‘end poverty’  logo hanging from their headquarter’s façade. The World Bank launched its new development goals – partly pre-empting the outcome of the UN’s ongoing post-2015 process (i.e. the new commitment to reduce the share of people living in absolute poverty to 3% of the world’s population by 2030, and to increase the incomes of the bottom 40%).

However, there is no reference to reducing relative poverty, which is as culpable in promoting human misery as absolute poverty. Without support for redistributive mechanisms such as progressive taxation systems, or support for public financial management to implement such taxation schemes, there is no guarantee that this approach will address issues of inequality. Civil society groups in Washington DC argued that the new goals would benefit greatly from a clear understanding and “concrete action” on shared prosperity and reducing inequality.  

The Communiqué of the World Bank development committee addressed the challenges presented by macro-economic instability, unemployment and food price volatility. Furthermore, it lauded World Bank President Jim Yong Kim’s vision paper for the future of the organisation and the focus on shared prosperity.  Unfortunately, however, there were no clear solutions given to the challenges – and the principles put forward by the vision paper on shared prosperity are mired in compromise and ambiguity.

On unemployment, the World Bank lionised the private sector’s contribution to growth and job creation. The Communiqué argued that “with a proper enabling environment, adequate infrastructure, and policies that promote competition, entrepreneurship and job creation, the private sector can support shared prosperity and offer real opportunities to all citizens”. It called upon its private sector arms, the International Finance Corporation (IFC) and the Multilateral Investment Guarantee Agency (MIGA), to increase their support to the private sector to achieve the objectives of inclusive growth. There was no clarity on whether funding would be scaled up to support an appropriate regulatory framework to protect workers’ rights, or to ensure that financing goes to appropriate private sector partners that can deliver on development objectives.

There seems to be a suggestion that all private actors are equal, paying no regard to the current period of jobless growth or the complicit role that many in the private sector have played in tax avoidance, effectively reducing the ability of developing countries to collect revenues that could finance many of their social and infrastructure needs. Furthermore, a recent audit of the IFC’s use of financial intermediaries by their ombudsmen determined that many of these private sector investments yielded questionable development results.

There is also no recognition that, without public guidance and oversight, economic growth can be a destroyer of jobs, as technology transfer and scaling up production reduces the need for unskilled labour.  This is particularly worrying considering the call for expanding investment in infrastructure and agricultural sectors during a period of declining support for the public resources needed to manage such complex activities and mitigate their negative effects. The role and support of domestic policy other than addressing governance issues and creating an ‘enabling environment’ for business is unclear.      

Co-organised by Eurodad Czech member Glopolis, this conference brings together more than 100 participants from leading civil society organisations (CSOs) and think tanks, including a large group of Southern allies. See the full list of participants here.

This rare gathering of policy experts on development finance, combined with solid preparations by Eurodad, Glopolis and several other members, will definitely bring new perspectives, set out clear strategies and not least provide an excellent networking, analysis and strategy session opportunity.

The agenda includes big plenary sessions with great panellists (experts from academia and other leading thinkers), as well as several stimulating workshops. There will also be one full day for strategising and several opportunities for planned and spontaneous meetings and other activities.

So, if you haven’t signed up yet, register here!

We look forward to seeing you in Prague in June!